Index Fund Calculator (Canada)
Calculate your index fund investment growth for TFSA, RRSP, or non-registered accounts with fee impact analysis.
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Index Fund Investing in Canada
Index fund investing has become increasingly popular among Canadian investors due to its simplicity, low costs, and historically strong performance. By tracking market indices, these funds provide instant diversification at a fraction of the cost of actively managed funds.
Choosing the Right Account Type
Canadian investors have several tax-advantaged options:
- TFSA (Tax-Free Savings Account): Contributions are made with after-tax dollars, but all growth and withdrawals are completely tax-free. Great for most Canadians.
- RRSP (Registered Retirement Savings Plan): Contributions are tax-deductible, growth is tax-deferred, but withdrawals are taxed as income. Best for high earners.
- Non-Registered: No contribution limits, but capital gains and dividends are taxable. Use after maxing registered accounts.
The Impact of Fees (MER)
The Management Expense Ratio (MER) might seem small, but it compounds over time. A 2% MER can cost you over 40% of your potential returns over 30 years compared to a 0.2% fund. This is why low-cost index ETFs are so popular.
Popular Canadian Index ETFs
- XEQT / VEQT: 100% global equity, ~0.20% MER
- XGRO / VGRO: 80% equity / 20% bonds, ~0.20% MER
- XBAL / VBAL: 60% equity / 40% bonds, ~0.20% MER
- VFV: S&P 500 index, ~0.08% MER
Frequently Asked Questions
What is an index fund?
An index fund is a type of investment that tracks a market index like the S&P 500 or TSX. Instead of trying to beat the market, it aims to match its performance. This passive approach typically results in lower fees and often outperforms actively managed funds over the long term.
Should I use a TFSA or RRSP for index funds?
It depends on your situation. TFSA is generally better if you expect higher income in retirement than now, want flexibility to withdraw anytime, or have already maxed your RRSP. RRSP is often better if your current income is high (you get a bigger tax refund) and you expect lower income in retirement.
What is a good MER for an index fund in Canada?
Low-cost index ETFs like XEQT, VEQT, or VGRO typically have MERs around 0.20-0.25%. Traditional mutual funds often charge 1-2.5%. Over decades, this difference can cost you tens of thousands of dollars. Aim for MERs under 0.5%.
What are popular Canadian index funds/ETFs?
Popular all-in-one ETFs include: XEQT (100% equity), XGRO (80/20), XBAL (60/40) from iShares, and VEQT, VGRO, VBAL from Vanguard. These provide global diversification in a single fund with low fees.